New Delhi For 15 years, the Supreme Court has wrestled with a slippery question: Is a small pack of coconut oil for cooking or for hair care?
The question arose from the category under which the oil should be taxed, and back when the court first heard the case, India’s indirect tax regime was built around excise. On Wednesday, when it finally pronounced that a small pack of coconut oil would be considered a cooking oil (unless the pack specifically mentions it is for hair), the regime is built around the Goods and Service Tax (GST). Cooking oil attracts 5% GST as compared to hair care products which attract 18%.
The judgment comes as a relief to manufacturers and consumers alike, bringing clarity to a protracted tax dispute that had tied up courts, government departments and industry stakeholders since 2009.
At the heart of the debate was how to categorise a product widely used for both culinary and cosmetic purposes and whether the size of the container dictates the oil’s purpose.
The revenue department argued that small packs of coconut oil are primarily purchased as hair oil, citing market surveys to back its claim. It contended that packaging and marketing strategies are pivotal in determining usage, advocating for an 18% GST classification under hair care products.
But manufacturers, including Madhan Agro Industries (India) Pvt Ltd and M/s Marico Ltd (which makes the popular Parachute brand) insisted that coconut oil, regardless of its packaging, is fundamentally an edible product. They pointed out that it has long been categorised as such under the Central Excise Tariff Act and that its dual-use nature should not lead to higher taxation.
In its ruling, a bench comprising Chief Justice of India Sanjiv Khanna and justices PV Sanjay Kumar and R Mahadevan rejected the revenue department’s arguments, emphasising that tax classification should align with common parlance and trade practices rather than speculative interpretations. The judgment highlighted the importance of aligning tax classifications with consumer usage and market realities.
“The mere fact that coconut oil is also capable of being put to use as a cosmetic or toilet preparation, by itself, would not be sufficient to exclude such oil from the ambit of ‘coconut oil’ and subject it to classification as ‘hair oil,’ as ‘coconut oil’ is name-specific… Small-sized containers are a feature common to both ‘edible oils’ as well as ‘hair oils’. Therefore, there must be something more to distinguish between them for classification of such oil, be it under Chapter 15 or under Chapter 33, other than the size of the packing,” held the bench.
It also noted that coconut oil was clearly identified as edible oil under the First Schedule to the Central Excise Tariff Act, 1985, and also in perfect alignment with the corresponding entries in the (Harmonised System of Nomenclature) HSN, which is an internationally standardised system developed and maintained by the World Customs Organisation for classifying products.
The decision has broader implications than just GST rates. For consumers, this ruling translates into potentially lower prices for small packs of coconut oil, making them more affordable. For manufacturers, it provides clarity on tax obligations and an opportunity to streamline marketing strategies.
Dinkar Sharma, company secretary& partner, Jotwani Associates, said that the ruling is a landmark in Indian tax jurisprudence, serving as a guide for both taxpayers and authorities in dealing with disputes over multi-use goods. “It encourages authorities to adopt a more scientific and objective approach while classifying goods, avoiding reliance on speculative factors such as consumer behavior or marketing techniques,” he said.
The tax law expert added that for the edible oil industry, the verdict is a step toward stability and growth, while for the broader business community, it exemplifies the importance of a robust legal system in resolving commercial disputes.
The case dates back to 2009, when the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that small-pack coconut oil should be classified as edible oil under Heading 1513 of the Central Excise Tariff Act. The revenue department challenged this, arguing it should fall under Heading 3305, which covers hair care products.
In 2018, the matter reached a stalemate when a two-judge Supreme Court bench issued a split verdict, requiring the intervention of a larger panel. Wednesday’s ruling finally brings closure to this long-running legal battle.
The stakes were high for both the government and the industry. A ruling favouring the revenue department’s stance could have led to higher taxes, affecting affordability for consumers and squeezing profit margins for manufacturers. For the government, classifying coconut oil as a hair care product would have meant substantial additional revenue to the tune of ₹159 crore a year.